RY-TAN CONSTRUCTION, INC v WASHINGTON ELEMENTARY SCHOOL, et al

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SUPREME COURT OF ARIZONA En Banc RY-TAN CONSTRUCTION, INC., an Arizona corporation, ) ) ) Plaintiff-Appellee, ) ) v. ) ) WASHINGTON ELEMENTARY SCHOOL ) DISTRICT NO. 6, a political ) subdivision of the State of ) Arizona; THE GOVERNING BOARD OF ) THE WASHINGTON ELEMENTARY SCHOOL ) DISTRICT, a Legislative Body of ) Washington Elementary School ) District No. 6, ) ) Defendants-Appellants. ) ) __________________________________) Arizona Supreme Court No. CV-04-0300-PR Court of Appeals Division One No. 1 CA-CV 03-0248 Maricopa County Superior Court No. CV99-006812 O P I N I O N Appeal from the Superior Court of Maricopa County Honorable Mark R. Santana, Judge REVERSED AND REMANDED ________________________________________________________________ Opinion of the Court of Appeals, Division One 208 Ariz. 379, 93 P.3d 1095 (App. 2005) VACATED ________________________________________________________________ FRANCIS J. SLAVIN, P.C. By Francis J. Slavin Ellen B. Davis Attorneys for Ry-Tan Construction, Inc. Phoenix JENNINGS, STROUSS & SALMON, P.L.C. By David B. Earl David J. Cantelme Gordon L. Lewis Attorneys for Washington Elementary Phoenix School District No. 6; The Governing Board of the Washington Elementary School District No. 6 HOLM, WRIGHT, HYDE & HAYS, P.L.C. Phoenix By Brad Holm Attorneys for Amicus Curiae City of Phoenix and League of Arizona Cities and Towns ________________________________________________________________ M c G R E G O R, Vice Chief Justice ¶1 We granted review primarily to consider whether a school district is contractually bound when it has accepted a construction bid but has not yet executed a written contract.1 We conclude that a school district is not contractually bound prior to the execution of a written contract. We exercise jurisdiction pursuant to Article 6, Section 5.3 of the Arizona Constitution and Rule 23 of the Arizona Rules of Civil Appellate Procedure. I. ¶2 On January 4, 1999, the Washington Elementary School District (the District) solicited bids for the construction of new classrooms. bidder. Ry-Tan Construction, Inc. was the lowest On February 12, 1999, the project architect recommended that the contract be awarded to Ry-Tan. ¶3 Representatives from the District met with Ry-Tan on 1 We granted review on other issues but, because our resolution of this question resolves this controversy, we do not reach those issues. 2 March 1, 1999. At that meeting, the parties discussed problems that had arisen during a 1995 construction project that Ry-Tan had completed for the District. began construction During that project, Ry-Tan prematurely, prior to the asbestos removal by an abatement contractor. District sustained fines and completion of As a result, the citations. Ry-Tan signed an acknowledgment that it would take all steps necessary to ensure that this type of situation does not occur again. ¶4 On March 11, 1999, the School District s governing board (the Board) voted to accept Ry-Tan s bid, and the Board s executive director signed a Notice to Proceed. The Board scheduled a meeting with Ry-Tan for March 12, 1999, at 3:00 p.m. At that meeting, contract the documents and parties were Ry-Tan was to to formally receive execute the the Notice to Proceed and provide required bonds. ¶5 On equipment to the evening of the March construction site 11, and 1999, began Ry-Tan work took prior to execution of the formal contract. Upon learning of Ry-Tan s action, to District personnel refused sign the contract and cancelled Ry-Tan s bid. ¶6 Ry-Tan denied that District personnel had instructed it not to begin work before signing the contract and argued that the District lacked authority to cancel or modify the contract. Nevertheless, the Board voted to re-bid the project. 3 ¶7 Ry-Tan brought this action, contending that the Board s approval of Ry-Tan s bid created a binding contract. It further argued that signing the contract documents and posting the required bonds constituted mere formalities and did serve as a condition precedent to contract formation. hearing argument on cross-motions for summary not After judgment, the trial court held that Ry-Tan could proceed with its action, concluding that there were only ministerial functions left to accomplish once the school board awarded the contract . . . . ¶8 The jury returned a verdict in favor of Ry-Tan. The court of appeals affirmed, holding that a contract was formed between the School District and Ry-Tan as of the date of the Board s vote, when the Board found that Ry-Tan was the lowest responsible bidder and made the award. Ry-Tan Constr., Inc. v. Wash. Elementary Sch. Dist., 208 Ariz. 379, 389 ¶ 32, 93 P.3d 1095, 1105 (App. 2004). II. ¶9 issue More than fifty years ago, this court addressed the of contract formation involving public entities in Covington v. Basich Brothers Construction Company, 72 Ariz. 280, 233 P.2d 837 (1951). That case arose after Basich Brothers Construction Company (Basich) submitted a bid to the Arizona State Highway Commission (the Commission) to build a road. at 282, 233 P.2d at 838. Id. As required by the bid specification, 4 Basich s proposal guarantee, a certified check for $30,000, accompanied the bid. The Commission accepted Basich s bid and sent a letter awarding it the contract. Under the terms of Basich s days proposal, the company had ten to execute a contract after receiving notice of the award. ¶10 Soon after it sent the letter awarding the contract, the Commission adopted a resolution stating that if Basich did not execute and return the contract within ten days of the date of the award, guarantee the award forfeited. Ten would days be revoked after and making the the proposal award, the Commission notified Basich that its proposal guarantee had been forfeited and the contract had been awarded to the next lowest bidder. ¶11 Basich then brought a mandamus action to recover the proposal guarantee. by the Commission The trial court held that the notice given of its intention to revoke the award was defective and ordered it to return the proposal guarantee. On appeal, we upheld the judgment of the trial court. Id. at 288, 233 P.2d at 842. ¶12 We concluded that mandamus was the proper remedy, in part because the proposal and award were preliminaries looking toward the execution of a formal contract . . . . 233 P.2d at 840. Id. at 285, We held that the Commission could revoke the award because a contract with a public agency is not binding on 5 the public agency until a formal contract is executed, id., and that the commission [had] the right to reject any and all bids at any time before a formal contract [was] entered into. at 286, formed, 233 P.2d at the 840-41. parties should Because be no returned contract to their had Id. been pre-award positions and the deposit returned to Basich. ¶13 facts If of we this apply case, Covington s the bright-line District must rule prevail. to the Covington established that a public agency that accepts a bid on a public contract is not bound until a formal contract exists. Because Ry-Tan and the District never executed a formal contract, Ry-Tan cannot recover from the District if Covington controls. Ry-Tan successfully argued to the court of appeals, and argues here, that its situation can be distinguished from that considered in Covington. Alternatively, Ry-Tan suggests, we should overrule our decision in Covington. III. A. ¶14 The concluding court first of that it appeals could basis of its unusual facts. was a mandamus action accepted distinguish Ry-Tan s approach, Covington on the As the court explained, Covington clearly based in equity. Constr., 208 Ariz. at 385 ¶ 20, 93 P.3d at 1101. Ry-Tan Expounding on that fact, the court held that Covington s statement regarding 6 contract formation must be interpreted in that context. ¶ 22. The court then held that Covington Id. at provides no indication that [the Arizona Supreme Court] was establishing a hard-and-fast rule that would trump different contract terms or different circumstances. ¶15 Id. Although Covington arose out of a particular set of facts, as is true of every judicial decision, and also involved a request for mandamus relief, that opinion did establish a controlling, bright-line rule that governs contracts into by public entities after accepting a bid. entered The opinion gives no indication that this court intended to limit it to the facts or type of relief involved, and we see no basis for distinguishing it on either basis. B. ¶16 The court of appeals also held that Covington does not control this surrounding contracts action contract in because the formation Arizona have procedures and changed the and formalities awarding [since of 1951]. Constr., 208 Ariz. at 387 ¶ 25, 93 P.3d at 1103. public Ry-Tan The court noted that, since the Covington decision, Arizona has adopted § 27 of the Restatement (Second) of Contracts. Id. That statement is accurate but does little to advance our analysis. ¶17 Section 27 of the Restatement (Second) of Contracts provides that: 7 Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations. Restatement (Second) of Contracts § 27 (1981). In support of the proposition that Arizona has adopted this section, the court refers to three recent decisions of the court of appeals. See Tabler v. Indus. Comm n, 202 Ariz. 518, 521 ¶ 10, 47 P.3d 1156, 1159 (App. 2002); Johnson Int l, Inc. v. City of Phoenix, 192 Ariz. 466, 470-71 ¶ 26, 967 P.2d 607, 611-12 (App. 1998); AROK Constr. Co. v. Indian Constr. Servs., 174 Ariz. 291, 297, 848 P.2d 870, 876 (App. 1993). ¶18 It is true that, in most contexts, section 27 captures a well-established rule of contract law. was not unknown Covington. adopted to Arizona courts at This rule, however, the time we decided By that time, this court had already essentially the Restatement view when it held that if parties expressed an intent to be contractually bound, they would be deemed so bound, even if the requisite formalities of acceptance were not explicitly followed. See Pratt-Gilbert Co. v. Renaud, 25 Ariz. 79, 86-87, 213 P. 400, 403 (1923) (holding that even though explicit followed, conduct contractual of parties method of expressed acceptance intent to be was not bound). Moreover, the Restatement (First) of Contracts, in effect when 8 we decided Covington, included a provision almost identical to that of section 27 of the Restatement (Second) of Contracts.2 The principle therefore, was embraced neither by new section nor 27 of unknown the when Restatement, we decided Covington.3 2 Mutual manifestations of assent that are in themselves sufficient to make a contract will not be prevented from so operating by the mere fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but other facts may show that the manifestations are merely preliminary expressions as stated in § 25. Restatement (First) of Contracts § 26 (1932). 3 The court of appeals also noted that the Covington court relied on Williston s treatise on contracts, notably this passage: In the formation of public contracts the formalities required by law or by the request for bids, such as a written contract, or the furnishing of a bond, often indicate that even after acceptance of the bid no contract is formed, until the requisite formality has been complied with. Ry-Tan Constr., 208 Ariz. at 384 ¶ 19, 93 P.3d at 1100 (quoting Covington, 72 Ariz. at 285, 233 P.2d at 840 (quoting 1 Samuel Williston, Williston on Contracts § 31 (1936)). The court of appeals quotes extensively from the current version of Williston and notes that editions then and now, support[] an approach to contract formation based on the applicable facts and circumstances. Ry-Tan Constr., 208 Ariz. at 388 ¶ 28, 93 P.3d at 1104. This is undoubtedly so. The fact remains, however, that this court adopted our bright-line rule rather than an 9 C. ¶19 Ry-Tan also argues that the Arizona School District Procurement Code (the Code), Ariz. Admin. Code (A.A.C.) R7-21001 to R7-2-1195, dramatically altered the landscape of school procurement contracts and effectively displaced the common law rule of Covington. The state board of education adopted the Code in 1987 pursuant to legislative authority. 213.J (Supp. expenditure 2004). of By public its terms, monies for A.R.S. § 15- the Code governs a school the district s procurement of construction, materials and services. A.A.C. R7-2-1002.A. ¶20 The legislature, of course, can modify or abrogate the common law. To do so, however, it must express its intent clearly [a]bsent and, a clear manifestation of legislative intent to abrogate the common law, we interpret statutes with every intendment in favor of consistency with the common law. Pleak v. Entrada Prop. Owners Ass n, 207 Ariz. 418, 422 ¶ 12, 87 P.3d 831, 835 (2004) (citation omitted). This general rule carries even greater force when the entity enacting the scheme is an administrative agency acting only authority granted by the legislature. within the limited See Gunty v. Dep t of Employment Serv., 524 A.2d 1192, 1197 (D.C. 1987) (holding that unless an administrative regulation _______________ indeterminate, flexible approach. 10 fairly expresses an intention to modify the common law, it should not be interpreted to do so). We conclude that the provisions of the Code do not modify or abrogate the common law bright-line rule adopted in Covington. ¶21 We note first that the Code explicitly states that the common law of contracts, the Uniform Commercial Code, and principles of law and equity as they exist in Arizona supplement the terms decision, of the Code. of course, is A.A.C. part R7-2-1002.D. of The Arizona s Covington common law of contracts and, as such, operates with other common law sources to supplement the terms of the Code. Because the Code by its terms incorporates Covington, we will, if possible, interpret its holding as being consistent with, rather than abrogating, the Covington holding. ¶22 As Ry-Tan argues, some portions of the Code suggest that the District could not cancel an award. For example, the Code directs that, after receipt and review of proffered bids, a contract shall be awarded to the lowest responsible and responsive bidder whose bid conforms in all material respects to the requirements invitation for and bids. evaluation criteria A.A.C. R7-2-1031.A set forth (emphasis in the added). Other sections of the Code authorize a public entity to reject a bid before award, but do not authorize such an action after an award. See A.A.C. R7-2-1074 (providing that after receipt of 11 bids, but before award, the district may cancel a solicitation if advantageous, (providing but that a only before district award); may A.A.C. reject R7-2-1076.A. nonresponsive nonresponsible bids only before a contract is awarded). asserts that these provisions support the notion or Ry-Tan that the District entered into a contract with Ry-Tan at the time it accepted the company s bid and could not thereafter cancel the award. While the Code s language could be interpreted that strictly, nothing in the Code expressly prohibits a public entity from withdrawing a bid after acceptance of the bid but prior to the award of a contract. ¶23 Moreover, distinguishes contracts. security between For must in other sections, the bid awards and example, A.A.C. R7-2-1111 accompany certain the bids.4 Code execution requires The itself of final that purpose of bid bid security, or a bid bond, is to compel[] [a] contractor to enter into the contract according to the terms of his bid. Marshall v. Dietrich, 30 Ariz. 54, 62, 243 P. 910, 913 (1926). ¶24 to A separate Code provision, however, requires a bidder post contract. a performance bond A.A.C. R7-2-1112. upon formal execution of the [T]he purpose of a performance 4 Bid security may come in the form of a bond or a certified or cashier s check, A.A.C. R7-2-1111.C.1 & 2, and must be an amount equal to at least ten percent of the bid. A.A.C. R7-21111.B. 12 bond is to insure the proper completion of [a] public works project . . . . Hartford Accident & Indem. Co. v. Ariz. Dep t of Transp., 172 Ariz. 564, 568, 838 P.2d 1325, 1329 (App. 1992). The second bond requirement is inconsistent with the notion that the bid award results in a final contract. That is, if the award of a bid immediately created a binding contract, no bid security to assure entry would be necessary. into the already-completed contract Instead, the Code presumably would require only a performance bond to ensure completion of the project. Ry-Tan s reading of the Code thus renders the bid security required by A.A.C. R7-2-1111 superfluous. ¶25 Additionally, difficulties for Ry-Tan s bidding A.A.C. R7-2-1112.B. approach entities creates attempting to substantial comply with That provision states that the performance bond and the payment bond shall be delivered by the contractor to the school district at the time the contract is executed. If a contractor fails to deliver the required performance bond or payment bond, the contractor s bid shall be rejected, its bid security shall be enforced, and award of the contract shall be made pursuant to this Title. Id. (emphasis added). ¶26 If contract with we were the to accept District was Ry-Tan s argument executed at the that its time the District accepted its bid, then the Code required the District to reject Ry-Tan s bid because Ry-Tan requisite bonds at the time of execution. 13 did not deliver the Indeed, were we to interpret the Code as establishing that a contract is executed when a bid is accepted, the Code would necessarily require that all bidders be present at the time the bids are opened, with the requisite bonds in hand. We do not consider that reading of the Code appropriate or practical. ¶27 On the other hand, the provisions above, when read together, anticipate execution of the an interval contract, between an a interval bid s that award and allows the successful bidder to present the required bonds at execution of the contract. That interpretation is fully consistent with, and allows us to give full effect to, Covington. Because the Code includes no express statement to the contrary, we hold that the Code did not change or abrogate the Covington bright-line rule. IV. ¶28 The final question for us is whether public policy requires that we overrule our decision in Covington. Arizona s relied governmental on Covington s entities and bright-line bidding rule for As noted, companies half a have century. Without compelling reasons, we are reluctant to overturn longstanding precedent. as set out by [P]eople should know what their rights are judicial precedent and having relied on such rights in conducting their affairs should not have them done away with by judicial fiat. White v. Bateman, 89 Ariz. 110, 113, 358 P.2d 712, 713-14 (1961). 14 ¶29 We detect no change in public policy that would lead us to set aside Covington s bright-line rule. such as this, important public that the funds elected are at stake. officials In situations It is responsible vitally for the disbursement of such funds retain the flexibility needed to make decisions in the public s best interest. entity formal an opportunity contract to occurs reject provides a bid Allowing a public until additional execution of flexibility a to respond to conditions that arise after the bid award and before execution of the contract, as occurred in this case, and further opportunity to consider the public interest. V. ¶30 Both parties agree that this matter arises out of contract, and both request attorneys fees pursuant to A.R.S. § 12-341.01 (2003). In our discretion we determine that, as the prevailing party, the District shall recover those reasonable fees incurred on appeal. Wenk v. Horizon Moving & Storage Co., 131 Ariz. 131, 133, 639 P.2d 321, 323 (1982). We will determine the amount of fees in accord with Rule 21 of the Arizona Rules of Civil Appellate Procedure. VI. ¶31 For the foregoing reasons, we vacate the opinion of the court of appeals and reverse the superior court judgment. We remand this matter to the superior court with instructions to 15 enter judgment for the District. ____________________________________ Ruth V. McGregor Vice Chief Justice CONCURRING: __________________________________ Charles E. Jones, Chief Justice __________________________________ Rebecca White Berch, Justice __________________________________ Michael D. Ryan, Justice H U R W I T Z, Justice, dissenting ¶32 The majority holds that this case is controlled by the bright-line Co., 72 contract rule Ariz. with 280, a of Covington 285, public v. 233 P.2d agency is Basich 837, not Bros. Construction 840 (1951), binding on that the public agency until a formal contract is executed. See supra ¶ 13. agree is with the majority that distinguishable from Covington. this case not See supra ¶¶ 14-15. a I factually I also agree that Covington has not been overruled sub silentio by our decisions embracing the principles of § 27 of the Restatement (Second) of Contracts. See supra ¶¶ 16-18. 16 ¶33 I part company with the majority, however, on whether the Arizona Arizona School Administrative displaces the under District the Code Covington Code a Procurement ( A.A.C. ) Code R7-2-1001 common-law rule. contract is formed ( the Code ), to -1195, I would hold that when a school district awards a contract, not at subsequent formal execution of the contract. I therefore respectfully dissent. I. ¶34 Arizona Revised Statutes ( A.R.S. ) § 15-213(A)(1) (Supp. 2004) requires the State Board of Education to promulgate procurement rules consistent with the procurement practices prescribed in the state procurement code, A.R.S. §§ 41-2501 to -2673. The State Board adopted the Code pursuant to that statutory directive, and the Code therefore has the force of law. See Taylor v. McSwain, 54 Ariz. 295, 311, 95 P.2d 415, 422 (1939) ( It is the general rule that . . . regulations adopted by any commission, under the authority of a statute, have the same force and effect, so far as their scope is concerned, as law . . . . ). expressly As the majority notes, see supra ¶ 21, the Code states that the supplement[s] its provisions. common law of contracts A.A.C. R7-2-1002(D). But this is only if the common law is not displaced by the particular provisions of the Code. Id. the the Code has displaced The issue in this case is whether Covington 17 common-law rule either expressly or by necessary implication. See Pleak v. Entrada Prop. Owners Ass n, 207 Ariz. 418, 422 ¶ 12, 87 P.3d 831, 835 (2004) ( [I]f the common law is to be changed or abrogated by statute, the legislature must do so expressly or by necessary implication. ). II. ¶35 The Code sets forth a detailed procedure solicitation and award of construction contracts. point is an invitation for bids ( IFB ). for the The starting A.A.C. R7-2-1024. The IFB must include, among other things, all contract terms and conditions. district A.A.C. R7-2-1024(B)(1)(g). to the IFB s proposed Any amendments by a contractual terms within a reasonable time before bid opening. 1026(C). Thus, bidders know in advance must occur A.A.C. R7-2- all terms of the contract other than price; nothing is left to negotiation at the time of award. ¶36 The issuance of an IFB, however, does not automatically compel the district to complete the solicitation and enter into a contract with the low bidder. Rather, [e]ach solicitation . . . shall state that the solicitation may be canceled or bids or proposals rejected if it is advantageous to the school district. A.A.C. R7-2-1072. The district can cancel the IFB at any time before the receipt of bids if it deems such action advantageous. 18 A.A.C. R7-2-1073. After receipt of bids the district may still cancel the solicitation if advantageous, but only before award. ¶37 bids A.A.C. R7-2-1074. The Code also allows the district to reject specific without canceling the solicitation if the bidder is determined to be nonresponsible or the bid is nonresponsive. A.A.C. R7-2-1075(A), (B). But once again, the Code requires that any such action be taken before an award is made. A.A.C. R7-2-1076(A) ( The school district shall make See a determination that a bidder or offeror is responsible before awarding a contract to that bidder or offeror. ). ¶38 The majority recognizes that these Code provisions can be read as limiting a school district s ability to cancel a pending solicitation, but declines to interpret the regulations strictly because nothing in the Code expressly prohibits a public entity from withdrawing a bid after acceptance of the bid but before award of a contract. See supra ¶ 22.5 But this approach fails to address the real question posed by this case whether after a district award.6 may There is unilaterally no dispute cancel in the this construction contract was awarded to Ry-Tan. solicitation case that the At its March 25, 5 The majority thus seems to assume that acceptance occurs before award. The former term, however, is not used in the Code, and the majority does not define it. 6 It is common ground that the Code expressly allows a district to cancel a solicitation before award. See supra ¶ 36. 19 1999 meeting, the School District Governing Board voted to Cancel [the] Award, thus clearly acknowledging that an award was made. A similar acknowledgment appears in the District s supplemental brief, which states that the District cancel[led] the award to Ry-Tan . The District also conceded at oral argument that an award was cancelled. ¶39 The Code expressly provides that the IFB can only be cancelled for the advantage of the A.A.C. R7-2-1074 (emphasis added). district before award. Today s holding effectively amends this rule to provide the district the right to withdraw the solicitation at any time before execution of the contract.7 Had the framers of the Code desired such a result, they surely could have said so more directly. ¶40 free The majority s ultimate holding that a district is until the execution of a formal contract document unilaterally to decide, for any reason or for no reason at all, that it will not go forward with the contract also cannot be squared with several other particular provisions of the Code. For example, the Covington rule is inconsistent with A.A.C. R72-1131(A), which provides that the contract shall be awarded to _______________ 7 The majority also incorrectly suggests that Ry-Tan has argued that a contract was executed at the time of award. See supra ¶ 26. But Ry-Tan s argument is not that the contract was executed. Rather, Ry-Tan argues that there was an award, that 20 the lowest added.) responsible Under the and responsive majority s view, bidder. the low (Emphasis bidder is not awarded a contract, but merely a possible opportunity to enter into a contract, an opportunity revocable at the whim of the district. ¶41 The Covington rule is also inconsistent with A.A.C. R7-2-1112(B). That regulation provides that a district may refuse to go forward after award if a contractor fails to deliver the required performance bond or payment bond. The Code provides no other scenario under which a district can revoke an award. The natural implication is that no other permissible reason exists. More significantly, because the Code defines a contractor as any person who has a contract with a school district, A.A.C. R7-2-1001(16), the reference in R7-2-1112(B) to a contractor necessarily assumes that the successful bidder has a contractual relationship with the school district before delivering the performance and payment bonds. Because this delivery is to occur at the time the contract is executed, A.A.C. R7-2-1112(B), the rule thus plainly contemplates that the contract is formed before formal contract execution. ¶42 Ironically, the majority relies on A.A.C. R7-2-1112(B) in support of its conclusion that the Code leaves the Covington _______________ the award formed the contract, and that formal execution was not necessary for contract formation. 21 rule undisturbed. See supra ¶¶ 24-26. But the majority fails to address the significance of the word contractor in that Code provision. The majority s flawed in another respect. reading of R7-2-1112(B) is The majority reads the language in subsection B, referring to rejection of a bid for failure to deliver performance and payment bonds, as suggesting that no contract is formed until execution.8 an anomalous result. But such a reading leads to Under this interpretation of the Code, even if the contractor delivers the required bonds, the district is nonetheless execute the unilateral free to decide, contract. The obligations: for award under whatever thus reason, would R7-2-1112(B), not create the to only contractor would be required to deliver the bonds and thereafter to sign the formal contract at the risk of losing its bid security, but the district would have no obligation to accept the tendered bonds or enter the contract. ¶43 A more sensible reading of R7-2-1112(B) is that delivery of the performance and payment bonds and execution of the contract are not prerequisites to contract formation, but rather are conditions precedent 8 to the district s duty to The reference in R7-2-1112(A) to execution of the contract provides no support to the notion that a contract is not formed at award. As the majority notes in discussing § 27 of the Restatement (Second) of Contracts, our decisions have long recognized that contract formation can occur before formal execution. See supra ¶¶ 17-18. 22 perform its obligations under the contract that was formed at award. See Restatement (Second) of Contracts § 224 (1981) ( A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due. ); id., introductory note to ch. 9, topic 5 ( Conditions and Similar Events (§§ 224 30)) ( An obligor may . . . make an event a condition of his duty in order to induce the obligee to cause the event to occur. ). ¶44 This majority suggests, superfluous. interpretation render of the See supra ¶ 24. the Code does requirement of not, bid as the security The performance and payment bonds are security for the contractor s eventual performance of the contract and payment of subcontractors. different purpose: The bid security has a it serves as a liquidated penalty for any failure on the part of the successful bidder to deliver the performance and payment bonds, and may be forfeited if the contractor fails to do so. ¶45 In short, in my view, the proper reading of the Code is that the district requests offers to enter into a contract by issuance of the IFB. At the time of award, the district accepts the offer of the bidder to enter into the advertised contract at the price specified in the bid. The award is thus the point at which both sides the bidder and the district have a meeting of the minds. The district 23 has at that point made the determination that it was not in its best interests to cancel the solicitation and that the bidder is a responsible entity which is willing to enter the contract at the lowest price. The district may take its time before award to carefully consider whether it is in its best interests to cancel the solicitation and may carefully review the qualifications of the low bidder, but once an award is made a contract is formed. III. ¶46 The District cancelled the solicitation here because Ry-Tan, after the award but before formal execution of the contract, prematurely delivered equipment to the site and began work. But, as I have noted above, the District s unilateral ability to cancel the solicitation ended at the time of the award. A.A.C. R7-2-1074. Nor could the district have found Ry- Tan a nonresponsible bidder at that point, because the Code expressly award. ¶47 that requires a determination of responsibility before A.A.C. R7-2-1076(A). What the District is really claiming in this case is Ry-Tan, having been awarded a contract, contract by commencing work prematurely. breached that However, that argument has already been rejected by the jury, which concluded that RyTan did not commit a material breach of the contract. finding was upheld on appeal. Ry-Tan Constr., Inc. This v. Washington Elementary Sch. Dist., 208 Ariz. 379, 396-401 ¶¶ 65- 24 72, 93 P.3d 1095, 1112-17 (App. 2004). The District did not seek our review of that issue and thus cannot now claim that RyTan breached the contract. IV. ¶48 For the reasons above, I would hold that a contract was formed when the District awarded the contract to Ry-Tan and that the District breached that contract when it refused to accept the performance and payment bonds, execute the formal contract document, and accept Ry-Tan s contractual performance. Because the majority concludes otherwise, I respectfully dissent. __________________________________ Andrew D. Hurwitz, Justice 25

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